China's intangibles strategy

Here is an interesting quote from a story in today’s Washington Post:

“We’ve lost a bucketload of money to foreigners because they have brands and we don’t,” complained Fan Chunyong, the secretary general of the China Industrial Overseas Development and Planning Association. “Our clothes are Italian, French, German, so the profits are all leaving China. . . . We need to create brands, and fast.”

By the way, the story is on how the Chinese are “stuck doing the global grunt work in factory cities while designers and engineers overseas reap the profits.” I find that spin fascinating — an example of the “stand-alone-intangibles-will-save-us” trap many fall into. If all the profit is in design and engineering, then why is China running such a large trade surplus? Let me re-iterate a point I’ve made many times before: intangibles are key. But they key to intangibles is how they are used to increase productivity and innovation across the board- not simply how we sell (license) them to others.
The story also goes on to talk about how China is behind in innovation and the development of internationally recognized brands. That maybe true right now, but don’t bet on it in the future. As the above notes, official China is pushing the development of intangibles. That is a development we need to take seriously.

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